I nearly drove off the road last week as a result of a comment I heard on one of the financial stations on satellite radio.
The economist essentially said, “To get economic growth up to the proper level, we need the housing market to be better. We also need the commercial real estate market to warm up. And consumers need to increase their spending.”
Really? Are you kidding? This comment – which is typical of overpaid economic professionals – is wrong on so many levels.
First, the housing market is stronger than it has been since the 2002-2006 period. Intelligent economists agree that the market in the early 2000s was propped up foolishly by the extremely lax mortgage policies allowed by the Bush administration. These policies led to the Great Recession of 2008-2009, which caused a significant drop in real estate prices and the stock market. Unwinding the economic chaos caused by these policies almost destroyed the world economic system.
Regarding commercial real estate, wouldn’t it be wise to consider the impact of Amazon on retail? Perhaps we also might consider the impact of telecommuting regarding the demand for office space.
You might have noticed – and this on-air economist did not – that many shopping malls and retail strip centers are not doing well. The fact is that bricks and mortar retailers are under assault from Amazon and other successful online retailers. If online sales continue to grow, why do we need more retail real estate development? Why do we need more shopping malls and strip centers?
The fact is that the number of existing retail locations far exceeds the demand for retail space. Do economists have a way to and from work that allows them to miss all the commercial real estate signs at shopping centers and strip malls? If shopping malls are being torn down at a rapid rate and retail sales – excluding online – are falling, why would an economist think we need more commercial development?
The other area of historic growth for commercial real estate is office buildings. Even as employment increases, many new and existing workers work from home. They seldom come to an office. In fact, my sense is that we have more office buildings than we need in most places. For example, the rapid building in West County is likely a result of businesses moving out of other places in the region, not the result of new demand. We are, at best, in a replacement mode for office space.
In his invalid economic view, this economist also mentioned increased consumer spending. Economists do this because consumer spending went up significantly from the early eighties until the 2008-2009 recession. The problem is that conditions now are much different than they were then.
First, unless wages go up, people don’t have more money to spend. With low inflation, small increases in disposable income, and the rising cost of healthcare, most households have less money to spend. Unless productivity increases, real wages and spending power for consumers cannot increase.
Second, the growth from the eighties into the 2000s was fueled by many amazing new technology products. During that period, consumers were excited to buy home computers, laptop computers, I-pods, smart phones, HD TVs and more. Keeping up with the neighbors technology became a passion for most Americans.
But in 2017, what is the next great thing that most consumers want? Is there another PC, tablet, I-phone, high def television or other exciting product on the horizon? Is there a new whiz-bang gizmo that everyone will want to own? Spare me! It is definitely not 3D TV!
Interestingly, one of the leading factors in consumer spending in the last five years has been increasing automobile sales. This was expected. By the end of the recession, the average car in the US was older than it had been in many years. But now we are at a point where the average age of cars has come down to more historic levels. This suggests less replacement demand in the next few years.
In addition, cars are made better and are likely to last longer than in the past. The point is that spending on cars is likely to decline somewhat over the next few years meaning that it will be a drag on overall consumer spending.
Economists complain about the lack of saving by Americans but also complain about the fact that consumers are spending less. Without an increase in household incomes, more spending and more savings cannot happen at the same time.
If we want to take a realistic view of the economy and its growth prospects, we need to look in places other than real estate and increased consumer spending. What we need is increased personal income which can only happen with increased productivity. We also need new spending sources to add vigor to the economy.
The most obvious way to increase economic growth is via significant investments in the infrastructure of the US. Most Americans agree – and this includes most politicians – that our infrastructure is declining. To fix our infrastructure, we need massive investments in highways and bridges and other infrastructure projects.
Congressional approval of a large – one billion dollar plus – infrastructure program would seem to be a sound idea that would have support from both Democrats and Republicans. In fact, implementing such a program would have been a great start to Trump’s first 100 days.
Instead, the arguments about tax cuts and Obamacare reform continue ad nauseum as Congress acts out the role of the cruise director on the Titanic. And Trump seems happy to be the captain on the sinking ship of the US economy.